SBI takes battle against wilful defaulters to RBI: SBI wants the list of wilful defaulters to be circulated to banks on a real-time basis; has taken up matter with RBI Mumbai, January 20: State Bank of India (SBI), the country’s largest lender, has stepped up its battle against wilful defaulters or companies that have the means to pay back their loans but don’t do so deliberately. SBI wants the list of wilful defaulters to be circulated to banks on a real-time basis, instead of the current practice of doing so once every quarter, and has taken up the matter with the Reserve Bank of India (RBI). The lender, which has seen a substantial surge in the number of wilful defaulters among its borrowers in the recent past, wants more frequent updates to prevent such borrowers from seeking loans from other banks before RBI can circulate their name with other banks, said Soundara Kumar, deputy managing director at SBI. Kumar added that RBI has already taken note of SBI’s request and acknowledged it in a recent discussion paper on managing bad loans. The list of wilful defaulters is compiled every quarter by RBI based on submissions by individual banks. Once the screening committee of a bank identifies a case of wilful default, the lender issues a show-cause notice to the defaulter, giving it 15 days to respond. Based on the response, the bank decides whether to classify the company or individual as a wilful defaulter. If it chooses to, it passes on the name to the apex bank, which adds it to a public list of wilful defaulters. The entire process takes 4-5 months, within which time period some of these defaulters approach other banks for loans, Kumar said. This has prompted the bank to take up the issue with RBI, said Kumar, who heads SBI’s stressed assets management (SAM) division which handles high-value non-performing assets (NPAs). SBI, which controls nearly 22% of the total deposits of the banking system, has been aggressively taking steps to rein in wilful defaulters in the last few years, after seeing a surge in loans stuck with wilful defaulters. At the end of December, 1,242 companies with total loans of Rs.9,336 crore had been classified as wilful defaulters by SBI. Of this, 775 companies have been added to the list of wilful defaulters in the last three years alone. A significant number of such defaulters are mid-size companies with an average loan size of Rs.60-70 crore. In the third quarter alone, SBI added 67 companies to the list, with loans aggregating Rs.650 crore. A company tagged a wilful defaulter, and its promoters, are barred from raising money from other financial institutions. They are also prohibited from floating new ventures for five years. A bank can classify a firm a wilful defaulter when companies fail to honour loan commitments despite having the resources to do so, or if money has been diverted or siphoned off from the firm. In August, 2013, finance minister P. Chidambaram said that state-run banks should deal strictly with wilful defaulters to check NPAs, while being sympathetic towards borrowers facing difficulties. “Genuine defaulters and wilful defaulters need to be dealt with separately. We have to be strict with wilful defaulters,” Chidambaram said in an address to the Parliamentary Consultative Committee of his ministry. R. K. Bansal, executive director at government-owned IDBI Bank Ltd, said realtime availability of information on wilful defaulters would benefit banks. “It’s all about quick availability of information. If the bank gets the details on the wilful defaulters faster, that will help it act quickly (on such accounts).” Bad loan pile SBI’s move to tackle wilful defaulters comes against the backdrop of the increasing proportion of bad loans on its books. At the end of September, gross NPAs of the lender stood at Rs.64,206.3 crore, or 5.64% of its total loans, as compared with 5.15% in the year-ago period and 5.56% in the preceding quarter. More critically, the quantum of bad debt moved to the SAM division of the bank has risen to Rs.30,000 crore currently as compared to Rs.20,000 crore at the end of 2012-13, Kumar said. Bad debts are moved to the SAM division from individual departments when asset quality worsens to a critical state. In recent years, the Rs.82 trillion Indian banking system has witnessed a sharp surge in bad loans. Gross NPAs of 40 listed Indian banks grew 36.95% from Rs.1.67 trillion at the end of September 2012 to Rs.2.29 trillion at the end of September 2013. An analyst said it is important for banks to speed up the loan recoveries process and added that real-time recognition of wilful defaulter accounts would help the process. “Policymakers have been pointing out that there is a need for more aggressive recovery practices with regards to wilful defaulters. There needs to be a crackdown on such accounts,” said Vaibhav Agrawal, vice-president, research, at Angel Broking Ltd.
Posted on: Tue, 21 Jan 2014 16:31:55 +0000
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